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tv   The Kudlow Report  CNBC  October 19, 2009 7:00pm-8:00pm EDT

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report." raise rates. stop printing new money and defend the sinking dollar. that's the cover story for barron's newspaper and our tom story tonight and we have barron's reporter, andrew barry and the whole panel. and the demise of the dollar is a storm cloud over bullish stocks and a recovering economy and creating a global sense that america is in decline and i hate that. we must stop it. i'm wearing a dark tie tonight in mourning over the death of the dollar. elsewhere tonight on the show, drill, drill, drill, or else oil is going to $100. the crackdown on insider trading expands the tip of the iceberg. how much trouble is your hedge fund going to be in? and the chamber of commerce global warming hoping hopes, is this another balloon boy? fasten your seatbelts. "the kudlow report" begins right now.
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good evening. i'm larry kudlow. welcome back to the kudlow report where we believe free market cappism on the supply side with king dollar is the best path to prosperity. here's a quick supply schnyder minute as we lead into the dollar story. ben bernanke gave a big speech on the west coast and never mentioned the dollar. it is incredible, beyond the pale as the greenback plunged again today especially against the euro. gold and commodities continue to boom. mr. bernanke is playing with fire. his creating a speculative bubble that could doom the bull market recovery. that is why i call it a "storm cloud." one last point before we get to our distinguished panel. the dollar's demise is a sign of global declinism for america. this could be the worst part of the whole story. if the obama administration wants to undermine american leadership and exceptionalism and treat this country like all the other c-plus students around
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the world, they are sorely mistaken. when the u.s. leads, the world prospers. when the u.s. declines, as in the 19 0s, the world falls apart. the dollar, therefore, becomes a symbol as well as a reality. here now, we have cnbc contribut contributor is -- "come on ben. "andrew barry, great story. among the many top points you made, i want to read this, you say the fed doesn't seem to be distinguishing between normal accommodated monetary policy and crisis accommodated policy. and there's a big difference. can you expand on that point? >> well, the crisis is over, larry. the economy's recovering. the stock market is doing well. the dollar is down.
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commodities are rising. the fed can still be accommodated but they don't have to keep rates at zero. they can be at 1 or 2%. we ought to send a signal to our foreign partners we care about the dollar. >> let me ask you, is there a speculative bubble going? some people are calling about the dollar carry-trade, because you can borrow dollars with no interest rates and use it to buy gold or commodities or foreign commodities. is there another speculative bub? is like the earlier part of the 2000's and will this wind up in a very sad tale for this promising bull market in stocks and the promising economic recovery? >> it could be. i think the smart money seems to think the dollar is a one-way bet going down. commodity is a one-way bet going up and the stock market is a one-way bet going up. a lot of that is the easy money the fed is pursuing. >> steve, you're out there on the west coast. i'm astonished that bernanke gives a big speech and doesn't mention the dollar.
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what's your take? >> larry, i'm afraid i couldn't disagree with you more, larry. it's been very hard to sit here while you talked about this declining in greenback being a sign of declinism. i don't know if that's a word, larry, let alone you're using it to describe the demise of america. in fact, it's quite the opposite. what happened during the crisis was incredible confidence in america as investors all around the world pored their money into dollars. what's happening now is a step back from the crisis where people are essentially getting out of the dollar into other assets. if you looked at the dollar over a long period of time, the past couple of years, we were right back where we were before the surge. i'm afraid you're off base. a policy designed to save the dollar would have caused interest rates to be higher earlier than they should have been and it would be a recipe for a continued recession in theally like the 1930s. >> i'm not pulling back, including my dollar declinism.
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there's a brilliant article -- >> is that a word, "declinism?" >> there's a brilliant article on this very point. maybe when you have a spare moment you'll read it. david, let me ask you, steve leisman said people flock to the dollar during the heart of the crisis. but the crisis has been over kwor quite some time. aren't we simply printing too many dollars, david, and why? >> we know the dollar is weak ening so that must mean there's too many. the emphasis i want to put on this is this is washington's choice. they think they're saving export jobs but that's coming at a tremendous cost to the rest of americans. they're getting a few jobs for a kpu companies at the cost of living standards for everybody else. the big thing in the declinism debate is include wealth. u.s. wealth relative to the rest of the world is going down. by all measures, so we've got to
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take that into account in the u.s. projection of power and growth in jobs into the future. we can't do it when the money is going elsewhere. >> david, when you see the currency, dollar plunging and the gold price rising as has been the pattern, has this ever ended in a happy movie? i want to ask that question. has it ever worked? >> no. this is like the 1970s and for a short time you get the s&p to go up but we're nip and tuck with gold going higher than the s&p which say sign of -- that's what happened in the carter malaise. gold was higher than the s&p and we don't want to go back there. >> how did it keeping it pegged in the '30s end up, david? not so good either. >> no one is arguing for a peg. we're arguing for a long-term interest -- >> sure you are. gold is -- gold is up against many major currencies right now not just the dollar. the argument that higher gold is a function of a weakening dollar
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i don't think is bourn out by the data. >> but you're saying we're doing worse than other countries are doing badly. so we're getting poorer faster than other countries? i think it's critical to look at what happened in the '80s and '90s for the united states, the living standards went up. in the weak dollar era, they're going down. that's harmful to job creation here. >> and dan, what does it mean that gold is going up against the dollar and all the other currencies? >> it means that our central bank isn't particularly unique. it means that many central banks are trying to print their way out of the near depression. that, thank goodness they pulled us out of. i think everybody needs to recognize that while we're now experiencing the side effects of a weaker dollar, record gold prices, all these bubble phenomenon that you're talking about, these are merely the side effects of critically important treatment that pulled us out of
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near death seven months ago. and if you're ben bernanke, you have to think very, very carefully about how quickly you want to take that patient off of life-support. while i respect andrew barry's article very much and i hope ben bernanke reads it, it's too simple to say, he should just go to 2% interest rates because the crisis is over. the only reason it looks over is because we have zero percent interest rates. >> i don't think the crisis is over. when you see the rebound in the u.s. stock market and the speculation that you're talking about, andrew, how do you react to don? doesn't the statute of limitations run out on this emergency crisis treatment of printing money? >> it used to be 1 or 2% short rates would have been viewed as very accommodating and now people think it will kill the recovery. i think the u.s. economy is more
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resilient than that and i don't think the zero interest rate is helping that much. wall street is the big ben fish area here. >> you make a point in your article that saverers are being damaged by the zero interest rate policy. could you expand on that? >> how come -- everybody seems to care about borrowers that get over your head. how about people that saved all their lives and now basically get getting zero interest rate on their money in the banks. bernanke wants people to save more. why? inflation is now running at 1 or 2% and they get nothing on their money. >> steve, i don't understand. what is bernanke thinking here? how do you give a speech about global trade and talk about, well, this should save more. that side should save less or spend more, which i think is a bunch of global central planning. he doesn't even mention the dollar. it's the number one political and economic topic on wall
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street and in washington, stevy. i don't understand how bernanke, i think he's just missed the whole picture here. >> i appreciate the stevy, larry. i'm trying to think of a return is here, something maybe in russian. >> it's because i like you very much, even though you're drinking the cool laid from the treasury and the fed, that doesn't mean you're not my pal it means your badly mistaken in your point of view. >> nice to be on the wrong side every time. let me tell you. i think bernanke has been relatively consistent in the following way. the dollar is important and he said so. you defend the dollar by making the u.s. economy the strongest it can be. you do so by, among other things, trying to figure out how to the global imbalances out there. how do we go through it? we've gone from 6% of deficit of current account down to 3%. how do we consolidate and keep
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the amount of capital we import in a way we can afford to pay for it? that's one thing. the second thing is to get the economy back and moving and the dollar takes care of itself, let me tell you the follow two things the fed thinks, i think. it's a potential source of a shock to the economy, potential panic. something to watch out for. on the other hand, they don't feel like the adjustment that's taking place now is one that dramatically effects the macroeconomics of the medium-term forecast which is what bernanke has been very persistent about. >> i don't see, dave, at this stage of the game, i don't see how the fed's going to get out of this without doing a lot of damage to this bull market recovery. you tell me, how the hell are they going to do this? >> i think they can do it without raising rates. by expressing interest in the dollar. stop buying treasury and mbs. their created a lot of liquidity that's not needed at this point. they need to really express the
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long-term view of the dollar and they're not doing that. they want it to weaken. >> don, you're a guy that talks about, what, 1500 gold, $2,000 gold. you sound tonight, as though you're okay with that all the sudden. this is a big reversal from your prior position. gold is in inflation signal. gold is an inflation tax on the economy signal. energy is moving up. why are you so complacent, mr. luskin? this is a new song for you? >> that's a very fair question. i'm sorry i come off that way. i'm not complacent at all. i expect the fed will way overstay its welcome and we'll have an inflation their catastrophe. we'll have cpi in double digits two years from now and it will be miserable. i have to say, if i were ben bernanke, i don't think today or tomorrow is the time to start tightening. he needs to take out an
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insurance policy against deflation. >> and andrew barry, last word from your article, why is today the right time to make the right adjustments to save the dollar? >> we have to continue to attract capital and if we continue to keep rates at zero the dollar would be in trouble. the smart none moving out of the dollar to commodities. >> and there's no end. >> and you're not having trouble funding our debt? foreigners hold more of our debt today than ever in history. >> the fed is buying almost all the mortgage security created this year. >> that's a dramatic overstatement. the fed bought $3200 billion which is -- $300 billion and that's only a small portion of that. it will be over -- >> and of the trillion dollars, the foreigners have only sold $300 billion. >> it's short term. that's a critical problem. >> can they get out of that problem, david? i think andrew is right. they have to stop buying mortgage-backed security.
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they'll have to raise their target rate and the treasury department will have to step in and buy some dollars, david? >> i don't think it would take any of those measures. i think they can do it by changing their desires. also, they could back that up by stop buying mbs and buying treasuries. they're, instead, doing opposite. every measure including bernanke not mentions the dollar, pushes it down. >> what about this -- you have to convince me, larry. i'll ask you, steve. every time the treasury department sells a bond for debt-funding purposes, the debt creation, that qualifies as more foreign exchange reserves for central banks. and the evidence shows the central banks don't want those dollar reserves. and the evidence suggests that spending and debt creation is doing more to damage or just as much to damage the dollar as the fed's dollar printing. what are the federal reserve people telling you on that?
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what's the cool laid on that one? >> larry, i don't think there is one. they want to depend the dollar. they want the fiscal deficit to be in order over the long term. they understand at least unsustainable positions of the government 'i remain -- sear list, larry, what good comes from a policy that targets the dollar? i just don't see the paramount of the dollar in the u.s. economy, the way that you do. i think it's a symbol way beyond the actual economic -- >> i do not want to lose our world reserve currency status. i don't want to lose that. i think that everyone in the world besides you, china is challenging. russia is challenging. brazil is challenging. the europeans are challenging. i've seen this before. every time the u.s. leadership declines, the rest of the world goes to hell in a hand bag. that's my point. if the federal reserve wants to
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do something about the dollar, then i say, andrew barry is right, do something about the dollar. don't just talk about it, andrew, take some action, for heaven's sake. that's abottom line for your article. is that it? >> i don't think talk does it. the world needs to know that the fed means business. >> they haven't tried the talk and in the meantime the cap stall moving a broad. >> i don't want to talk. i want action. >> how do you deal with the fact that the fed has promised repeatedly to keep rates at zero for an extended period? if they change that tomorrow how will that help their credibility. >> then they're creating a stock market bubble and a commodity bubble. another financial bub. >> but you all are using those things as evidence that the recovery is so strong. >> whatever. you can't -- by the way, the last two months. cpi has gone up, not down. i got to get out. don, david, thank you, and stevy leisman on the west coast, thank
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you as always. and andrew barry, you wrote a great article and you shook up everybody on wall street. coming up, stock market surged today. it loves easy money and it also likes good profits. mother's milk of stock and i like that profit's part of the story. apple beat the street. huge after the bell. we'll have all the details. and later, bull versus bear. we square off. i don't want to lose the dollar's reserve status. i don't want to lose american leadership into a declinist financial policy. you're watching cnbc, we're first business worldwide. (announcer) take your time to find the right time
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stocks did surge today at apple. big huge after the bell. we have team coverage to talk about it. we have jimmy goldman on apple and then matt on the big market headlines. >> mr. kudlow, good evening. no two ways about it. the apple numbers were stunning. by now you know the details in
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after-market. this is a company that absolutely blew the street apart. a $1.82 beat consensus by 40 cents a share and look at that revenue line. 9.8 billion. that beat the street by a cool $600 million, mac sales were off to the races. 3 million units. iphone sales of 7.4 million. both those categories are all-time records for those two products and over 10 million i-pods sold and that also beats street consensus. apple shares jumped to over $200 a share on this news which is an all-time high for apple stock. they say mac book sales were up 35% during the quarter. 42% in asia. iphone will go on sale in china, fwishlly, in just a matter of weeks and this company's guidance? it was below wall street expectations but nearly at below as some analysts anticipated. this is a company that always sandbags earnings but the
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numbers the company is looking forward to are better than expected as far as what the whisper is concerned. looking at the one issue, the one fly in the ointment is the 34.6% gross margin expectation for the first quarter. that's down 2% sequentially. but if you're talking about that news item throwing some cold water on these numbers, it's only a little cold water. this apple momentum is going to continue for some time. >> thanks very much. here's matt, dollar or not? this is the market everyone loves to hate. i love this bull market. now i'm worried about the dollar but today was a good day, right? >> it was except a couple of isolated exceptions. including bb & t. they hit the eps but that had a story. athey wouldn't have done it if it wasn't for a big gain in taxes. if you look at the chart today, bb & t down about 4% versus a financial index that was up
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about 4/10, the second worst performer of stocks in that index. the same old sad country song for this carolina-based bank. those provisions are rising and those nonperforming assets and they have to stop that and move forward. a couple of sector anomalies. this is the discretion obsession. that's my own thing. if you look at gannett stock, up 8% here today. the company beat its own guidance that it raised as recently as september. 8.5% move on gannett but it's two discretionary peers, pet med express and hasbro. hasbro, missed on the revenues, thanks to a foreign exchange currency bite of about 3%. the cyclical pickle coming your way. an interesting story. two of three big gainers. eitheron, industrial manufacturery conglomerate, a mini ge without the financials,
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up strong at 5.4%. packaging corporate america, 9.2% decline on the day. and steel dynamics out after the close, up 2%. packaging is down about 7% after-hours with you steel dynamics will be interesting. little change in the regular session and they beat both the earnings and the revenue and they see their full-year profit versus an estimated 3-clent loss. that's important news. tomorrow, it's 5 dow tuesday. pfizer, coke, many are out as well as names like bank of new york, lockheed martin and illinois tool, coach, after the close, yahoo! many, they'll all be joining us. and i like to glif kudlow a little something other than knicknames. i like to give him a couple of picks. some to batch. two to watch tomorrow. ual, that'ss the ticker. down 2% today but up 125% from
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july 1st. the revenues will be up 10% quarter on quarter and the earnings will be up 84% from a $6 and change loss a year o a go. watch it, the stock has the coveted big move. and the low expectations here with the coal company. about 11 billion market cap. look for them to get her done, as they say in some circles. their at a 54-week high. >> you're eaton, ge, without the financial services, there's a very interesting thought. let's not go there. i can't help myself. industrial production. manufacturing. very strong in the last three months. cat pillar tractor, will it confirm tomorrow? will it confirm the recovery in production which is key to the economy? >> like baseball, if i was allowed three strikes cat would be on my list. it was less of a surprise.
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there's high expectations. up 6% today ahead of the big numbers. >> and gold coming back again this afternoon. gold up, the euro dollar up, the greenback down. and they combine the stock market, the whole thing about following the dollar. freeport was up hung. >> and mac marin and mac marin resources, mmr, up very strong. they're in the energy side of the business. their cousin. coming up, our bull and our bear. they're ready for battle. it's joe versus jim. i like the bull market. i've been talking about it all year going back to my mustard seeds last winter but if the dollar keeps falling that's our next challenge. we'll hear about it in "the kudlow report" straight ahead.
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stocks keep rising. let's go for a little bull-bear squareoff. we have jim paulson and joe and
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steve. hello, gentlemen. joe, talk to me about the dollar. because you know, i've been a bull this year but i'm getting real worried about this storm cloud and the reaction to it in the future. >> well, the problem is that our economy is weaker than the others we compete with. we have an administration that's going off in a new direction. not necessarily protrade and free markets. and we have a highly leveraged economy that's not de-leveraging fast enough. the federal reserve has been in there quantitatively easing but left the banks all sitting with a bad loan portfolios. not going for the prestructure suring. looking like japan without the big export surplus that would support the currency and that's why we have a dilemma. you're right to worry about it. >> jim paulson, your response on the dollar. jirm, there's got to be a reaction. the foreign currency markets, jim, are acting like the bond vigilantes in the '80s. they'll force the fed to do what
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andrew barry talked about and that's raise the target rate to 2%. >> well, larry, i guess i'm more with steve leisman on the dollar issue. i think the dollar is behaving just like a lot of other markets behaved. the safe-haven premium discount has come out of it, stocks had a discount for depression and took it back out. go down the line. junk bond spreads were at 22% and now their at 10. the dollar was higher and now it's back to where it was precrisis. i think that's all that's going on with the currency. i really do. >> it's below precrisis. >> not much. it's still up from where it was 15 months ago and flat from where it was two years ago. i think it's a very controlled, you know, removal of the safe haven people yum that's coming out of there. >> jim, i'm for the virginia-shaped recovery of a modest sort. i buy into the profits. we've had good strong industrial
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production. i don't have a problem with that. when i see a crashing dollar and rising gold price and the financial speculation that andrew barry of barron's talkedbility, jim, i get worried. i get worried. we've come this far. is wall street making this up on the fly? low dollar, good stocks? that string's going to run out, jim, is it not? >> i look at this a little different. i guess it's joe raised the issue that the economy is weak and the market's running way ahead of things. i think it's opposite of that. i think that we were falling at 6% real gdp in the first quarter. in the third quarter we probably had 3% plus real gdp growth. that's an economy that had the real growth rate improved by nine percentage points in six months and i think what's really going on is the economic fundamentals are way ahead of the market. >> people can't keep up with the
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incremental improvement in the economy and it just keeps yanking the market higher. >> you can't have it both ways. you have a federal reserve that refuses to put proper interest rates in place and is undertaking massive quantitative easing. an administration spending trillions to replace private spending with public spending. unemployment rate is 10% going higher. how can you say the fundamental relevance ahead of the stock market? that's absurd. the administration is talking about a new stimulus package. the fed may have to welsh on their guarantee. they'll have to stop buying mortgage securities in march. you're saying this is a prop lir a good economy 1234. >> we've had knot but report after report that it's better than expectations. if recovery in the financial markets from bond market to stock market is better than expectations, then the fundamentals just keep leading this market higher. >> in 2007 when the s&p expectation was 105 for '08.
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the s&p came in at 49. so we had a big reversal. now we're at it again. we think we'll earn $75 next year. $50 this clear, which is a 50% improvement and we're at 15 times earnings. and credit demand falling and the dollar is getting destroyed because the deficits are not sustainable. the next five years, $9 trillion and you don't see a problem with this? >> i think it's opposite. i think the expectation is in the bait and switch that we were given that we were all told we were going to have a depression and now we switch and say, we're not having a depression, now we're having a recovery. people's expectations are coming up and behind the reality of how fast we're improving. >> but the reality is more modest than it used to be. unemployment is expected to be higher. the run rate in gdp is lower and our buying power is only surviving -- >> the reality is it will
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probably improve faster than people expect. >> where is it. it's not showing up anywhere. >> the fed says they expect low growth and high employment. >> great discussion. i got to get out. many thanks to both of you for a great discussion. coming up, drill, drill, drill! or else oil could go to 100 bucks. our expert also drill down for us when we come back. drill, drill, drill. that's a golden oldie.
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the death of the dollar helps to push oil town der $80 a barrel or the question of today is, are we headed to $100 oil? we have the director of market and research at tradition energy. addison armstrong and senior analyst at mf global. john. john, we'll start with your $100 bid. what are your key bullets. >> geopolitical risks and continued demand and good economic growth from china. >> weak dollar. >> weak dollar. >> geopolitical risk. >> and continuing strength out of china. 7% gd pmt. a million cars a month being
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sold and almost record oil crude oil imports. >> do you include american or european recovery? whatever? >> to a degree i do but the weak dollar will take care of the american part. the europeans are coming out and germany is showing signs of life and that translates to more demand. >> addison, better growth? what do you think? >> in terms of the dollar i think the dollar selloff is getting a little bit old. it's getting long in the teeth and i think that you know we're due for a turn-around here and i think you'll start to see some people take this trade off as we go through the fourth quarter and it will help to stabilize prices. in terms of chinese growth, we're -- it's not great. and it's not going to get better until we start to see the u.s. consumer, the western european consumer participate through buying chinese exports and they can only keep this demand for oil going so long without turning to their export-driven economy. >> addison, i may not have heard it all. we had a technical difficulty. i take it you think the dollar
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is bottoming and i don't know if you think it going to rise. give me a little expansion on that key point. >> i think it's stabilizing. i think that we've come very far very fast. i think this is a trade. i think that as we move through the fourth quarter, there's a lot of profit in this trade and i think you'll see some of that come off as traders take profits before the end of the year. i think that in terms of the chinese, again, they've -- they need to start having some export growth. that's not going to happen until the u.s. consumer can participate. i'll tell you one thing. if oil price goes to $100 box and guess goes to $4, the u.s. consumer won't participate. >> i agree. that's why i call it a dark cloud or a storm cloud over the economy. so the best analysts have to be dollar currency analysts. that's how perverted this has come to. >> that's the trade that's worked for about four months.
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you have to come in and know the direction of the dollar and you're making money. >> what's your response to that? >> in terms of -- >> of the dollar. >> it's at -- look, the story is that, i think, true at its core. in terms of the deficit we just wracked up for the most current fiscal year, that's not getting any better. i don't care, a heard your guests earlier. they are not going to be restrictive in monetary policy any time soon, until the woods are way behind us. >> so essentially, we've had a good rlly in oil. >> and the equity market, too. it's up 15% in the last ten days. >> that's a big move, addison. let me get you to weigh in. you're not arguing fundamentals rebound are you? normally, in times gone by or addison i'll let you start and come back to john. in times gone by, addison, we might like at the demand for oil versus the supply of oil. you know me, i want to drill, drill, drill and deregulate.
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i'm for nuclear and natural gas. drill, drill, drill. that would get the price down and accommodate. but you're saying it's not supply and demand any more. this whole skree-up of the falling dollar has completely destroyed that old analysis? >> it certainly has. personally, i'm a bear and i'm looking at the fundamentals and i'm scratching my head. but at the same time i can't stand here day after day and fight this take. this strong momentum of the speculative trade coming in. they know the commodity's coming out of a recession. we're not even starting to come out of the recession yet in my estimation so they're getting ahead of themselves. i think it's going to come off. >> what do you think, john? gold? he covered a lot of ground. >> they said, times, prices plead fundamentals. they don't necessarily reflect them. that's why i'm with you. we need to drill, drill, drill. not just in the ground.
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between our ears. we have to get off this oil addiction. this will keep repeating but that's good pore me and addison because we'll be back on here. >> and we have those saying dollar is going down another 20%. if that view is true, what happens to the price of oil? >> 100 will just be a mild post on the way to probably 150. >> addison, if a guy like neil ferguson is right, if the momentum of the dollar falls, if the printing of the dollar, if the federal debt and -- all that stuff we've been talking about in this program, okay. what happens to oil if the dollar drops another 10 to 15%? >> 10 to 15% from here doesn't even get us back to the dollar lows of last year when it drops to 1.60 against the euro. i'm with john. i don't think we're getting to 150. but certainly you'll see 100 or 105 on oil. at that stage, that will put a real crimp in what will happen to demand here in the uss for
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oil. let's not talk about -- let's go back to the fundamentals. look at the supply. there's an industrial commodity, some 25% above normal for this time of the year but there's a huge stockpile to be worked off when and if the economy turns around. >> but it will feel like a monetary disaster. it will be all over the press and in the front of people's minds and drives this inflation further. that's part of the key point of inflation. people start to chase the goods with the additional dollars and you get -- >> so many people don't understand. i appreciate the two sides. addison, you're saying dollar is bottoming, fair enough. you're saying it will continue to fall. the promise some of these people in washington and around the country don't understand the link between the dollar and oil. that's a key point. by the way, some people in the gulf states want to end that link for precisely this reason. >> which will make matters worse. >> that's a different subject. john and addison, thank you ever
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so much. coming up, the crackdown on insider trading expands. how much trouble is your hedge fund going to be in? this is a nasty little story. keep it right here with "the kudlow report."
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scott is here with the latest. hello, scott. >> it seems like we'll see more where this came from. raj rajaratnam's company's had 700 billion in its management at its peak but now the question is whether the firm will last the week. if founder is on bond and today, a spokesman said it's business as usual and restrictions on -- no restrictions on its business or asset freeze. this image of raj rajaratnam in handcuffs not be helpful. some institutional investors could be required to pull their money out. at gallian and throughout the hedge fund world they're dealing with the reality that prosecutors saying this was part of a new aggressive effort to enforce insider trading laws including using tactics like
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wiretapping, tactics once preferred for fighting organized crime. gallian says it's shockeded by this and so is the company's whose executives allegedly supplied the insider information, intel, ibm, and the case is a stark reminder that people need to watch what they say. i had also focusing on company executives who are being recruited by hedge fund based on the information they can bring some of these people were investing in the gallian funds and in exchange for good returns -- >> scott, important point you made. i hadn't thought about it. gallian's going down. it looks likes they're in deep trouble. >> they're in trouble because its founder is in trouble. the company is saying that they're liquid and everything is business as usual but it's hard to imagine how they'll keep that up. >> if other guys are named, ten more hedge fund guys are going to be named, their hedge funds could be in trouble also? >> there are institutional investors that could be required
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as we said to pull out. based on whatever they're institution's rules are. >> scott, thank you very much. up next, we'll discuss this because we're moving pretty fast. is it just circumstantial evidence or is averaraj going tl with the rest of them. we have two lawyers here and they'll have a little look-see and maybe a disagreement. keep it right here with "the kudlow report." costs. dallas. detroit. different rates. well with us, it's the same flat rate. fla boston. boise? same flat rate. alabama. alaska? with priority mail flat rate boxes from the postal service. if it fits, it ships anywhere in the country for a low flat rate. dude's good. dude's real good. dudes. priority mail flat rate boxes only from the postal service. a simpler way to ship. is at the heart of the collaborative economy. and collaboration is good-- no one has a monopoly on good ideas.
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continuing the narrative. what is the real story behind this gallian hedge fund bust. joining me to talk about it we have tom and tom. tom, let me start with you. this guy, raj, whoever, if he's guilty throw him in jail for the next 50 years. i've got no skin in this game. i want to get your take. a lot of times, insider trading is tough to. a lot of circumstantial media and a lot of circumstantial evidence. what are you thinking, tom, on the right now? >> i'm thinking that this is an isolated prosecution. i think they swooped up and got a lot of people and isolated the conduct. this is $20 million in profits, allegedly for a hedge fund with $3.7 billion. so this was trading in 2006 when everybody was making money so it wasn't exactly conduct engaged in order to inflate their
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results for their investors. that said, i think that the hedge fund industry needs to be careful in the current environment. and they need to make sure they have their internal policies and procedures in order. >> tom, let me ask you about this point. $20 million, which is -- i know it's a big number but it's not really for the big heblg funds. this fellow, robert moffitt, a senior executive, he gets nailed for a million bucks which i hate to say, these are big numbers but this is a pittance in the great world of wall street. that's the unreal part of this story. >> that's the one trade we know about. there may be many other trades, the prosecutors just need one trade, one time when he broke the law and then they prosecute him. >> what's his incentive? let's focus on the ibm kbie. maybe we got a baseball card of this guy. he's in line, possibly, to become the head of ibm. he was a top deputy of the ceo
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of ibm. it was a lousy million dollars. he's giving away his career, his life and maybe a jail term, why? >> it's only the million dollars we know about. we don't know how many other conversations he had where he was passing along insider information. at a minimum, this guy is really sloppy with his speech. i know that ibm and companies like that have strict internal guidelines about what can be said and what can't be said outside the company. this guy was talking to people and telling them information he should have kept to himself. >> tom, i don't want to hint or imply or infer or body language, that i want to defend this. i don't. i don't. if they're guilty, throw them in jail forever. but i'm interested in this technical stuff that always goes on with insider trading. let me ask you. directors and officers, have to give information to somebody who then passes it on to a third party to make a buck. what do we know about this?
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i'm not -- i mean, moffitt wasn't giving them information about ibm. does that confuse the issue at all? >> yes, it does. the question becomes, does he have a duty to keep that information confidential? is it material information to him, to the market? two, is it nonpublic to him? does he have a duty not to disclose it? these are not cut and dry issues. these are allegations and, you know, so sit there and say there's ten more people coming, as bloomberg is reporting or this is the tip of the iceberg, that's irresponsible. >> we need a trial. i'll leave it with you. real fast. if he gave information -- it's his opinion. that's not insider trading if it's his opinion. >> if it's his opinion but it's not. he's giving hard numbers and
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